What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Boustead Plantations Berhad (KLSE:BPLANT) and its trend of ROCE, we really liked what we saw.
What Is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Boustead Plantations Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.12 = RM414m ÷ (RM4.1b - RM587m) (Based on the trailing twelve months to September 2022).
So, Boustead Plantations Berhad has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 11% generated by the Food industry.
Check out our latest analysis for Boustead Plantations Berhad
In the above chart we have measured Boustead Plantations Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Boustead Plantations Berhad.
So How Is Boustead Plantations Berhad's ROCE Trending?
The trends we've noticed at Boustead Plantations Berhad are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 12%. The amount of capital employed has increased too, by 26%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
The Key Takeaway
All in all, it's terrific to see that Boustead Plantations Berhad is reaping the rewards from prior investments and is growing its capital base. And since the stock has fallen 23% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Boustead Plantations Berhad (of which 1 makes us a bit uncomfortable!) that you should know about.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.